Chemical Deals Deserve Attention

You always have to pay attention to a deal where the acquirer ramps, especially one where there's stock involved.

That's exactly what happened this morning when Eastman Chemical (EMN) bid for Solutia (SOA). This kind of consolidation is hugely additive and, in this case, a sure sign that Eastman Chemical recognizes that performance chemicals, Solutia's bailiwick, could be making a big comeback. When you hear performance chemicals you should be thinking non-residential construction and aerospace and we know from Eaton yesterday that both markets have been gaining steam.

The chemical patch has gotten very hot of late. Westlake's (WLK) trying to buy Georgia Gulf (GGC), which is a residential pvc pipe play. Last year Lonza bought Arch Chemical, another deal that seems to be working out well for that Swiss acquirer.

All of these companies have a tailwind that's terrific: feedstock. They use natural gas.

I think Eastman will continue to run on this one. The group's gotten little respect. Eastman traded 10% higher not that long ago.

The combination's a good one.

Oh, and hats off to Wells Fargo's Frank Mitsch as he's been red hot in predicting deals in this undervalued segment of the stock market.